How does the marginal cost of producing crude oil for the world market change as the volume of oil increases? For the first 40!million barrels per day, the marginal cost is less than $10!per barrel. The marginal cost increases at a moderate rate for the next 25 million barrels per day, up to roughly $20 per barrel for 65 million barrels per day. The marginal cost then starts to increase rapidly, to roughly $80 per barrel for 75 million barrels per day (the quantity produced in early 2015).

The marginal cost curve reflects variation in the cost of extracting oil from different sources. Starting at the low end of the cost curve, the marginal cost is relatively low for nations in the Middle East (including Saudi Arabia and United Arab Emirates) and Russia. In the intermediate range, marginal cost is higher for oil from the North Sea, oil sands projects in Canada, and conventional onshore sources in the U.S. At the upper end of the cost curve, the marginal cost is relatively high for oil from the Arctic, biodiesel, and ethanol.

Question.

Why is the Marginal-cost curve positively sloped?